PMP LIMITED - Australian Securities · PDF fileDRAFT FOR DISCUSSION Merger with IPMG Group 28...

DRAFT FOR DISCUSSION

Merger with IPMG Group 28 October 2016 Peter George, CEO Geoff Stephenson, CFO

INVESTOR PRESENTATION

PMP LIMITED ABN 39 050 148 644

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Contents Pages

Executive Summary 3

Strategic Rationale 6

Overview of IPMG 9

Trading Update 19

Acquisition Terms, Funding and Financials 12

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Appendix 21

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EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY (1/2)

PMP is to merge with IPMG Group1 (IPMG) with IPMG shareholders issued new PMP shares

as consideration, equivalent to a maximum 37%2 interest in PMP (the „Transaction‟)

IPMG is a print and digital services provider, privately owned by members of the Hannan

family. IPMG operates through various businesses including Hannanprint, Inprint and Offset

Alpine

PMP has appointed Grant Thornton to prepare an Independent Expert‟s Report on whether

the Transaction is fair and reasonable for PMP Shareholders

PMP Directors unanimously recommend shareholders vote to approve the Transaction, in the

absence of a superior proposal and subject to the Independent Expert‟s conclusion

– The Directors intend to vote in favour of the Transaction for the shares they control

The Transaction is subject to a PMP shareholder vote at an Extraordinary General Meeting to

be held on Friday 16th December, 2016. Completion is expected on 3rd January (subject to

PMP shareholder approval and other conditions precedent)

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Acquisition

Overview

Strategic

Rationale

The Transaction creates a more efficient and sustainable company better placed to serve

customer needs and adapt to the challenges facing the print industry

The Transaction is expected to generate substantial cost synergy benefits

(1) PMP will acquire 100% of IPMG Holding Company, of which IPMG Pty Ltd is a subsidiary. See page 14 for details of IPMG Group shareholders current ownership levels.

(2) The IPMG shareholders together will own up to 37% of PMP (on a fully diluted basis, including vested performance rights). The exact percentage will depend on Completion

Account adjustments.

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EXECUTIVE SUMMARY (2/2)

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Key Acquisition

Terms, Funding

and Financials

Approximately 188 million PMP shares to be issued to IPMG shareholders,1 implying an

enterprise value of approximately $119m2

IPMG shareholders have entered into 24 month standstill and holding lock arrangements

covering their 37% combined equity interest (subject to certain exceptions)3

On a pro-forma FY16 basis IPMG generated approximately $362m of revenues and $21m

of normalised EBITDA4

Pre-tax cost synergies of approximately $40m per annum are anticipated – full run-rate

expected to be realised in 18 to 24 months post Completion. One-off implementation cash

costs of approximately $65m are anticipated

– Implied transaction multiples of 5.7x FY16 normalised IPMG EBITDA before pro-forma

synergies, and approximately 2.0x after pro-forma synergies of $40m and excluding one-

off implementation cash costs

IPMG will be entitled to nominate two (out of seven) directors for appointment to the PMP

Board

Credit approved funding commitments from ANZ for new debt facilities of up to $60m to

fund one-off implementation cash costs and working capital requirements

Transaction is subject to limited conditions (see page 13)

(1) PMP will issue up to 187,970,295 PMP shares to the IPMG shareholders. The exact number of shares will depend on Completion Account adjustments. PMP shares issued to individual

IPMG shareholders will reflect their relative ownership interest in IPMG Group. See page 14 for further details.

(2) The implied value of shares issued to IPMG is $119,361,137 assuming a PMP share price of $0.635 as at 27 October 2016. IPMG is being merged into PMP on a net debt free basis.

(3) Arrangements in place from Completion through to 31 December 2018. Limited exceptions to the holding lock and standstill restrictions are outlined in the Share Sale Deed.

(4) See page 22 for details of normalisations.

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STRATEGIC RATIONALE

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STRATEGIC RATIONALE

The Australian print industry has been facing challenges for over a decade arising from

changes in demand

As a result of the Transaction, the Merged Group will be more efficient and sustainable,

with improved capabilities to deliver integrated print services and compete with existing

competitors

The Merged Group will be better placed to respond to current and long-term industry

trends

The Transaction is expected to be materially value accretive with significant synergy

benefits in the form of cost savings expected to generate value for PMP shareholders

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SYNERGY BENEFITS

Optimisation of the joint press fleet

Labour savings arising from better utilisation and rationalisation

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Press Fleet Capacity

Property

Procurement

Other

Operational Efficiencies

Savings on property costs from optimising the Group‟s operational footprint

Operational efficiencies from centralised procurement and reduced paper waste

Savings from rationalising the operations across repairs & maintenance, power and utilities and

a range of other manufacturing and operational expenses

Further savings from the integration of support office functions

One-off Implementation

Costs

One-off cash costs in order to realise the above synergy benefits, as well as any impact of post

completion onerous leases

Implementation costs expected to be incurred predominantly over the first 12 months

Expected non-cash impairments to include writing-down of surplus equipment2

Pre-tax cost synergies from the merger of approximately $40m per annum are expected. Full run-

rate to be attained within 18 – 24 months post Completion. One-off implementation cash costs

totalling approximately $65m1 are expected to be incurred

(1) Estimated cash implementation costs, excluding any potential post completion impacts of onerous leases provisions and transaction costs.

(2) Subject to post completion purchase price accounting.

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OVERVIEW OF IPMG

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OVERVIEW OF IPMG

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Formed in 1887, IPMG is a private company that provides printing

and digital services throughout Australia

- IPMG is wholly owned by members of the Hannan family

Print

- IPMG operates printing services through various businesses

in Australia including Hannanprint, Inprint and Offset Alpine

- The companies offer services such as heatset web offset

printing, sheet fed and digital printing, as well as a range of

associated finishing solutions and associated services

- The print division makes up approximately 90% of IPMG‟s

revenue

Digital and Integrated Marketing

- In 2007, IPMG diversified its activities and invested in the

digital space

- IPMG provides digital services through four entities: SBM,

Holler, Traction Digital and Spectrum

Key IPMG executives to join PMP‟s management team

Print Digital and

Integrated Marketing

Revenue: $327m1 (c.90%

of FY16 revenue)

• Four print facilities on the

east coast of Australia

• 17 presses in total:

- 11 in NSW;

- 3 in Victoria; and

- 3 in Queensland

• Print activities range from

magazines to newspapers

and packaging

• Total print volumes of

173,000 tonnes in FY16

Revenue: $35m1 (c.10% of

FY16 revenue)

• SBM: A production

agency with offices in

Sydney and Brisbane

• Holler: Digital creative

agency based in Sydney

• Traction Digital: Cross

channel marketing agency

and platform, with offices in

Sydney, Melbourne,

London and Singapore

• Spectrum: Integrated

communications agency

with offices in Sydney and

Singapore

(1) FY16 pro-forma revenue.

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355362

FY15 FY16

IPMG – FINANCIALS & GEOGRAPHIC PRESENCE

Pro-forma Revenue1 ($m)

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Pro-forma EBITDA2 ($m)

Note: Financial year ending 30 June.

(1) Pro-forma revenues excludes revenue from entities not acquired as part of this transaction.

(2) Represents EBITDA (pre significant items) adjusted for certain pro-forma adjustments identified during due diligence. See page 22 for details of normalisations.

Print Volumes (tonnes)

Print facilities based in

NSW, Victoria and

Queensland

Digital businesses

primarily based in

Sydney

Brisbane

Cairns

Melbourne

Sydney

Key Financials Geographic Footprint

2021

FY15 FY16

170173

FY15 FY16

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ACQUISITION TERMS, FUNDING

AND FINANCIALS

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ACQUISITION KEY TERMS (1/2)

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(1) The IPMG shareholders will own up to a maximum of 37% of PMP (on a fully diluted basis, including vested performance rights). The exact percentage will depend on the Completion

Account adjustments.

(2) PMP‟s closing share price on 27 October 2016. IPMG is being merged into PMP on a net debt free basis.

(3) EBITDA pre significant items and adjusted for certain pro-forma and normalisation adjustments identified during due diligence. See page 22 for details of normalisations.

Merger

Overview

PMP is to acquire 100% of IPMG and will issue new PMP shares to the IPMG shareholders

(„Consideration Shares‟) equivalent to a total 37%1 interest in PMP

Corresponding enterprise value of $119m based on the issue of approximately 188 million new

shares and a share price of $0.6352

Equivalent to an implied multiple of approximately 5.7x FY16 normalised IPMG EBITDA3 before

pro-forma synergies (approximately 2.0x after $40m of pro-forma synergies and excluding one-

off implementation cash costs)

Completion of the Transaction expected on 3 January 2017, subject to satisfying limited conditions

precedent

Closing

Conditions

Conditions precedent to Completion include:

PMP shareholder approval at an Extraordinary General Meeting to be held on Friday 16

December 2016

No regulatory intervention to restrain Completion

Completion of the IPMG pre-completion reorganisation

Capital

Management

Given the cash costs of delivering synergies, PMP will suspend its capital management policy

including dividends and share buy-backs during the implementation period

PMP will continue to progressively review capital management policies but does not expect to

recommence dividends or share buy-backs before 2018, subject to trading conditions

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ACQUISITION KEY TERMS (2/2)

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IPMG

Shareholders

IPMG is privately owned by members of the Hannan family

PMP Consideration Shares will be issued to IPMG shareholders reflecting their relative ownership

interests in IPMG1

Post Completion, IPMG shareholders will hold the following ownership interest in PMP shares:

Lindsay Hannan: 18.4%

Michael Hannan: 9.5% (of which James Hannan will have voting rights over 1.6%)

Adrian and Richard O‟Connor: 9.2%

IPMG shareholders have agreed to equity holding lock and standstill arrangements for a period of

approximately 24 months post Completion2

Governance

IPMG is entitled to nominate up to two directors to the PMP Board

The IPMG nominees will be:

Michael Hannan – Executive Chairman of IPMG

Stephen Anstice – Former CEO of IPMG and current Chairman of CSG Ltd

Current PMP directors are to remain on the Board with Matthew Bickford-Smith to remain in his current

position as Chairman

Certain key IPMG executives to join the PMP management team that will continue to be led by CEO

Peter George3

(1) IPMG Group shareholders include Michael Hannan 25.6%, Lindsay Hannan 49.6%, and Adrian and Richard O‟Connor 24.8%.

(2) Arrangements include equity holding lock and standstill restrictions for the period through to 31 December 2018. There are limited exceptions to these arrangements as

outlined in the Share Sale Deed.

(3) The PMP Board has determined that Peter George will be eligible for an additional STI payment, equivalent to one year‟s salary payable on the successful achievement of

the Transaction synergy program.

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ACQUISITION FUNDING

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The Transaction is to be funded by the issuance of approximately 188 million new PMP shares to IPMG shareholders

IPMG is being merged into PMP on a net debt free basis1

PMP has received credit approved commitments from ANZ for new debt facilities of up to $60m that will be used as

required to fund working capital requirements and the one-off implementation cash costs

– Gearing is anticipated to increase in 2H17 subject to the timing of implementation costs however is expected to

reduce thereafter as synergy benefits are realised

– Future capital expenditures are anticipated to remain at low levels

Sources of Funds $m

Issue of PMP Shares3 $119m

PMP Cash on Balance Sheet4 $8m

Total $127m

Uses of Funds $m

Acquisition of IPMG $119m

Transaction Costs $8m

Total $127m

(1) The Transaction will include the assumption of one of IPMG‟s existing equipment financing facilities. IPMG will retain an equivalent amount of cash on balance sheet at

Completion to offset this facility.

(2) Sources and Uses exclude the working capital and net debt completion adjustments. Actual adjustments will not be known until finalisation of Completion Accounts

approximately one month after Completion.

(3) Based on the issue of up to 187,970,295 PMP shares at a share price of $0.635 as at 27 October 2016. The exact number will depend on Completion Account adjustments.

(4) Amount of cash from PMP‟s balance sheet that is being used to fund the acquisition.

Transaction Sources and Uses of Funds as at Completion2

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FY16 PMP IPMG1 Adjustments2

Merged

Group3

(Pro-forma)

EBITDA (pre significant items) $m 51.2 21.0 40.0 112.2

D&A $m (27.9) (13.5) (41.4)

EBIT (pre significant items) $m 23.3 7.5 70.8

Finance costs $m (5.9) (0.4) (2.8) (9.1)

NPAT (pre significant items) $m 11.8 42.8

Shares on issue millions 318.2 188.0 506.1

Earnings per share (pre significant items) cents 3.71 8.46

FY16 pro-forma EPS accretion (pre significant items) % 128%

(1) Represented on a pro-forma normalised basis. See page 22 for reconciliation to IPMG statutory EBITDA. Finance costs relate to the assumption of one of IPMG‟s equipment

financing facility (approximately $9.9m as at 30 June 2016).

(2) Excludes any post completion Purchase Price Accounting (PPA) adjustments, any potential write-down / impairment of surplus equipment which may impact ongoing

depreciation expense, and any impact of post completion onerous leases.

(3) Pro forma finance costs estimated using FY16 actual finance costs and an assumed average drawdown of approximately $45m on the new debt facilities.

(4) Excluding 1,885,815 unexercised vested performance rights.

PRO-FORMA INCOME STATEMENT & EPS ACCRETION

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(1) Pro-forma FY16 to reflect pre-completion reorganisation, removal of intercompany amounts, and entities excluded from the Transaction. The Transaction will include the

assumption of one of IPMG‟s existing equipment financing facilities (approximately $9.9m as at 30 June 2016). It is intended that IPMG will retain an equivalent amount of

cash on balance sheet at Completion to offset this facility.

(2) Excludes any post Completion Purchase Price Accounting adjustments, any potential write-down / impairment of surplus equipment; and any impact of drawdowns on

facilities to fund implementation costs.

PRO-FORMA BALANCE SHEET

FY16 ($m) PMP IPMG Transaction adjustments2 Merged Group

(Pro-forma)(Statutory) (Pro-forma)1 Acquisition Consolidation (Pro-forma)

Cash 54.1 9.9 (7.5) - 56.5

Receivables 96.3 52.6 - - 148.9

Inventory 85.6 35.3 - - 120.9

Property, Plant and Equipment 155.9 80.1 - - 236.0

Intangible Assets 27.5 1.5 - 4.0 33.0

Other Assets 57.5 6.0 119.4 (119.4) 63.5

Total Assets 476.9 185.4 111.9 (115.4) 658.9

Payables 139.4 42.7 - - 182.1

Borrowings 53.4 9.9 - - 63.3

Other 24.7 17.5 - - 42.2

Total Liabilities 217.5 70.1 - - 287.6

Net Assets 259.4 115.4 111.9 (115.4) 371.3

Net (Cash) / Debt (0.7) - 7.5 - 6.8

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TIMETABLE

Key Event Date

Transaction Announcement Friday, 28 October 2016

Despatch of Shareholder Explanatory Memorandum, Notice of Meeting and

Independent Expert‟s Report Tuesday, 15 November 2016

PMP Shareholder Extraordinary General Meeting Friday, 16 December 2016

Transaction Completion Tuesday, 3 January 2017

Note:

All dates in the above timetable are indicative only and are subject to change. The parties may vary any or all of these dates and times and will provide reasonable notice of any

such variation. Any changes will be announced by PMP to ASX. For

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TRADING UPDATE

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FY17 TRADING UPDATE

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Market conditions continue to be challenging into FY17, with lower volumes having

contributed to a soft first quarter

Management have identified further cost saving measures for PMP stand-alone

and remain confident these initiatives will bring results in line with expectations for

the full year FY17

Challenging market conditions continue to support the rationale for the Transaction

which will enable PMP to achieve a more efficient and sustainable print business

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APPENDIX

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22

IPMG NORMALISED EBITDA

$m FY15 FY16

Pro Forma Normalised EBITDA20.3 21.0

Non-recurring one-off items(5.8) (1.6)

Excluded entities and related costs(2.1) (1.6)

Non-operating items2.0 (2.6)

Statutory EBITDA14.4 15.2

Notes:

(1) Management normalisation to exclude income and expenses which are considered to be one-off or non-recurring in nature. The normalisation primarily consists of

redundancy costs, lease termination costs and a range of smaller items.

(2) Excluding P&L statement of entities which are not included in the transaction as well as personnel and property related expenses deemed to be non-recurring going forward.

(3) Exclude non-operating items including non-recurring other income (deferred consideration) trust distributions included in EBITDA and litigation settlement payments.

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DISCLAIMER

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These materials have been prepared by PMP Limited (or “the Company”). However, no representation or warranty

expressed or implied is made as to the fairness, accuracy, correctness, completeness or adequacy of any

statements, estimates, opinions or other information contained in these materials. To the maximum extent permitted

by law, the Company and its directors, officers, employees and agents disclaim liability for any loss or damage

which may be suffered by any person (including because of negligence or otherwise) through the use (directly or

indirectly) or reliance on anything contained in or omitted from these materials. The Company is responsible for the

information relating to the Company and its assets.

The materials may include forward looking statements about the Company and IPMG. Often, but not always,

forward looking statements can generally be identified by the use of forward looking words such as “may”, “will”,

“expect”, “intend”, “plan”, “estimate”, “anticipate”, “continue”, and “guidance”, or other similar words and may include,

without limitation, statements regarding plans, strategies and objectives of management. To the extent that these

materials contain forward looking information, the forward looking information is subject to a number of risk factors,

including those generally associated with the print industry. Any such forward looking information is by its nature

subject to significant uncertainties and contingencies and based on a number of estimates and assumptions that are

subject to change (and in many cases are outside the control of the Vendors or PMP and its directors, officers and

employees). This may cause the actual results or performance of PMP or IPMG to be materially different from any

future results or performance expressed or implied by such forward looking information. Readers should not rely on

these materials as a forecast by the Company.

These materials provide information in summary form only and is not intended to be complete. It is not intended to

be relied upon as advice to investors or potential investors and does not take into account the investment

objectives, financial situation or needs of any particular investor.

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PMP LIMITED - Australian Securities · PDF fileDRAFT FOR DISCUSSION Merger with IPMG Group 28...

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